BackHow salaried individuals can claim HRA in an income tax return?
Submitting HRA receipts and other required supporting documents to the employer is the best way of ensuring that the claim would be hassle-freeYou will have to submit details of your landlord's PAN to the employer if the annual rent exceeds ₹1 lakh
PremiumHouse rent allowance (HRA) is a component of salary received towards the rent paid by the employee for residence. Usually, the employer’s requests for rent receipts from the employees in the last quarter to allow the HRA exemption in Form 16. In case an employee fails to submit the rent receipts to the employer, the employer will go ahead to deduct (Tax Deducted at Source) TDS without allowing HRA exemption. However, you can still claim the tax-exemption benefit available on HRA while filing your income tax return (ITR).
So, in such a case, you will have to calculate the exempt HRA amount manually. Before that, you must also know that an exemption for HRA provided by the employer to the employee can be claimed if the employee incurs expenses towards renting a house for his/her stay. Aarti Raote, Partner, Deloitte India said, "No exemption is available in a case where the residential accommodation occupied by the assessee (taxpayer) is owned by him or the assessee has not incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him."
Here’s how HRA exemption is calculated as below:
Actual HRA received
Rent paid in excess of 10% of salary
50% of salary (where property rented is in metro cities) or 40% of basic salary (if the property rented is in non-metro cities)
The excess of the HRA over the exemption would be the taxable portion of HRA.
Now, let us understand this with an example, suppose you live in Mumbai and you have received ₹1 lakh as HRA component in your salary, basic salary plus dearness allowance is ₹1.8 lakh (there is no fixed percentage of commission), whereas rent paid is ₹18,000 per month i.e., ₹2.16 lakh per annum.
Actual HRA which is ₹1 lakh
50% of salary as living in metro city, i.e., ₹90,000
Actual rent paid less 10% of basic salary which is ( ₹2,16,000 - ₹18,000) ₹1,98,000.
Least of the above which is ₹90,000 is tax-exempt portion whereas ₹10,000 (HRA received less exemption allowed) is a taxable portion of HRA.
How to claim tax exemption on HRA?
If rent receipts are submitted to your employee
Submitting HRA receipts and other required supporting documents to the employer is the best way of ensuring that the claim would be hassle-free as the employer would consider the supporting documents and reduce the tax withholding accordingly. Further, the exemption would automatically flow into the Form 16 and subsequently in the tax return as well.
Archit Gupta, Founder and CEO ClearTax said, "If you have submitted rent receipts to your employer, then the employer will calculate the HRA exemption and deduct TDS accordingly. Also, the amount of HRA exemption will be reported in Part B of Form 16. Hence filing ITR will become easier as employees will have to just add the details as filled in Form 16 provided there is no additional income or deduction left to be claimed."
You will have to submit details of your landlord's PAN to the employer if the annual rent exceeds ₹1 lakh.
From the assessment year 2019-20, the income tax department has synced the ITR-1 with Form-16. With the help of this, it now becomes easier for salaried individuals to claim the HRA tax-exemption. This is because the amount gets automatically pre-filled in the ITR form, when you file it online.
If rent receipts are not submitted to your employer
If for some reason the rent receipts are not submitted to the employer, then you may consider claiming relief directly in the tax return.
Gupta said that in case an employee did not submit rent receipts to the employer, the employer would have not considered the HRA exemption and deducted higher TDS. However, the employee can still claim HRA exemption while filing ITR and excess TDS deducted will be refunded by the income tax department. "For doing this, the employee will have to calculate the correct HRA exemption amount and claim the same from the salary income in the return. On doing so any excess amount of TDS deducted will be reflected as a refund in ITR," said Gupta.
Furthermore, “If rent receipts are not submitted to your employer, the central processing centre (CPC) may raise a query while processing the tax return and at that time supporting documents need to be provided. Alternatively, the case may be picked for limited scrutiny and supporting documents can be provided at the time," Raote said.
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